It must have been a devastating shock for Vijay Mallya, India’s most flamboyant and image-conscious businessman, when the media and top business colleagues turned on him in the past few days over the plight of his loss-making debt-ridden Kingfisher Airlines.
The Mail Today’s front page yesterday (left) was the unkindest cut, but others also piled in. The Times of India today says “it isn’t the government’s business to bail the airline out”, and the Indian Express simply says “No Bailout”. Rahul Bajaj of Bajaj Autos said he saw “no logic in bailing out any private sector company”, voicing a widely-held corporate view.
Mallya said today that he had not asked for a bail-out, though he did want some help, and he has been lobbying politicians in the last few days. It was in fact prime minister Manmohan Singh who, flying back from an international conference, kindly but unwisely told reporters two days ago that “we have to find a way to get Kingfisher out of trouble”.
The prime minister would do better if he took advantage of Kingfisher’s crisis to clean up the government’s administration of the aviation sector, which has been riddled for more than a decade with corrupt and crony links between the aviation establishment and the private sector. That establishment embraces successive aviation ministry politicians and bureaucrats, other branches of government, and Air India, the government-owned, chronically inefficient and cosseted airline (with includes the former Indian Airlines domestic carrier).
Ratan Tata, head of the Tata group, has said he was not able to start an airline joint venture (about ten years ago) with Singapore Airlines because he was not willing to pay a minister a suggested Rs15 crore (then about $3.5m) bribe. Crony links have grown since then – especially between 2004, when the current Congress-led coalition government came to power, and a ministerial reshuffle in January this year. (I alluded to the links on this blog three years ago). During that period private sector airlines were encouraged, while Air India was decimated by a series of government decisions that included its nominal (still incomplete) take-over of Indian Airlines, questionable large aircraft orders, and foreign airlines being allowed to take over lucrative routes.
This is not to suggest that Mallya’s airline has benefited most from this cosy relationship, close though he is to many ministers and bureaucrats – six years ago The Economist said he was “famous for his racy, party-loving lifestyle” and for his not unconnected “skill at managing his relationships with government”.
Jet Airways, Kingfisher’s main long-term rival, has had its own deep associations for years. It benefited most from the Tata-Singapore link being scuppered by the government banning foreign airlines from investing in Indian carriers because this blocked a potential serious rival. The fact that Jet had to lose two foreign airlines that were then its equity partners was a small price to pay for seeing Singapore off.
Now Mallya is urging the government to end that foreign direct investment (FDI) ban on foreign airlines. Whether this would bring an airline into Kingfisher, given its present dire financial straits and Mallya’s erratic management style, is another question – Mallya says he has an offer from one would-be investor and there are rumours of others.
Today he has tried to stem the tide of bad news with a long televised press conference, where he appeared calm and confident. He produced no solutions to the airline’s problems, but correctly claimed that Kingfisher’s performance is no worse than competitors’. Its primary financial problem is crippling interest on $1.3bn long-term debt, and it urgently needs fresh working capital.
All airlines, as Mallya said, are hit by sharp rises in fuel costs, a rapid decline in the value of the rupee, and rising interest rates (now near 14%). He is negotiating with exasperated banks, which want him to produce more equity, and the State Bank of India is advising on restructuring the debt. In addition to the FDI change, Mallya is also asking the government to allow airlines to avoid sales tax by importing fuel themselves rather than through state-owned oil companies, and also wants duties charged by individual states to be reduced.
Mallya’s primary business is the highly profitable United Breweries (UB) group, which he inherited from his father. It is the world’s largest spirits business and India’s biggest brewer – producing Kingfisher Beer that gave the airline its name.
The airline has never made a profit since it was launched six years ago as part of Mallya’s “king of good times” mantra.
Last month it ended its Kingfisher Red cut-price operation that it has run, somewhat reluctantly and with muddled branding, since it bought Air Deccan four years ago. It has also abandoned some loss-making routes, and has cancelled flights because it has been re-configuring aircraft interiors – all of which has helped to escalate the sense of crisis.
As I said, it must be devastating for Mallya, who partly models himself on Virgin airline’s Richard Branson, to find himself so publicly shunned. He has for years wined and dined politicians, bureaucrats, opinion formers and journalists on his private jet and yacht, and at a stud farm, IPL private sector cricket tournaments (he owns a team), and many beach and city homes in India and abroad, as well as on Kingfisher aircraft. Only a month ago he was visibly shaken (above) when he had to admit India’s Sahara group as a 50-50 investor in his cash-strapped Force India Formula One racing team, now renamed Sahara Force India.
But what a marvellous chance his airline’s plight gives Manmohan Singh and Sonia Gandhi, the Congress Party chief, to begin to honour their pledges of tackling India’s endemic corruption and crony capitalism by dealing with Kingfisher transparently and openly. It could allow foreign airline investors to have minority equity stakes, and provide a level-playing field in India’s rapidly expanding aviation market – even if that leads one day to either or both Kingfisher and Air India closing down.